Penalties Doubled for Not Filing ACA Information Returns

The IRS has yet to provide guidance of what constitutes a good-faith effort

By Stephen Miller, CEBS July 22, 2015

The Trade Preferences Extension Act, which became law on June 29, 2015, included a provision having nothing to do with extending trade preferences. Flying under the radar of many, the law has doubled per-employee penalties on applicable large employers for failing to file Affordable Care Act (ACA) information returns with the IRS starting in 2016, or failing to furnish employees with payee statements, as required by the ACA, regarding their health care coverage.

Some reporting requirements apply to all employers that provide self-insured health coverage to their employees, regardless of size.

In the act, Congress amended Internal Revenue Code sections 6721 and 6722 to increase the penalties associated with a failure to properly file information returns or provide payee statements. “Among other things, these increased penalties will apply to Forms W-2 and the 1099-series, as well as ACA-required employer shared responsibility and minimum essential coverage reporting forms,” reports a July 13 Benefits Brief from Groom Law Group.

Among other adjustments, as a result of the amendments:

The basic penalty for failure to file or furnish a correct information return or payee statement will more than double from $100 to $250.

The standard annual penalty cap will double from $1.5 million to $3 million.

If the failure relates to both an information return and a payee statement, the penalties are doubled to $500 per statement with a $6 million cap.

The new penalties are effective with respect to returns and statements required to be filed after Dec. 31, 2015, which would include 2015 informational forms that must be filed with the IRS by Feb. 28, 2016 (or by March 31, 2016, if filed electronically), and payee statements due annually to covered employees by Jan. 31.

In preparation for reporting in early 2016, applicable large employers should have steps and infrastructure in place to gather information reflecting coverage being offered in plan year 2015, which can include monthly tracking of hours worked by employees.

Good-Faith Efforts

Despite the increase in penalty amounts, it appears that the current one-year transition rule is still available,” noted a July 15 online post from Leavitt Group, an insurance brokerage and advisory firm. “The one-year transition rule provides that employers and insurers will not be subject to penalties for the first year of reporting if they made a good-faith effort to comply but filed incorrect or incomplete information.” However, “there is no relief for failure to timely file” the required information returns with the IRS, or relief for failing to provide required statements to employees.

As a result, “If an [applicable large employer] with 100 full-time employees made zero effort to comply with the regulation or reporting requirements, it is looking at a minimum $50,000 fine out the gate,” pointed out a July 13 blog post from Benetech, an HR and payroll administration firm. As for the good-faith exception, “The IRS has not provided any amplifying guidance of what constitutes a ‘good faith effort.’ It’s safe to assume that when the time comes, they’ll be judge and jury,” Benetech warned.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow Me on Twitter. 

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